In an attempt to reduce this disparity, the Chinese government has sought over the last decade to accelerate the development of inland rural areas by reforming the agricultural tax system, subsidizing agricultural products and developing the rural economy.[1] The government also launched new rural medical healthcare systems,[2] pension schemes and other social welfare measures to improve social security in rural areas. And in 2001, the "two-waiver and one-subsidy" policy was initiated to promote compulsory education in rural areas. From 2000 to 2008, investment in the predominantly rural western and central regions increased by more than six times (See Table 1); and investment in rural areas nationally doubled between 2005 and 2008 (See Table 2). The rate of increase of rural income nearly doubled from 4.3 percent in 2003 to 8 percent in 2008.
Table 1: Completed investment in fixed assets by region in 2008 (billion yuan)
| Year | Eastern | Central | Western |
| 2008 | 8,741.2 (up by 20.9%) | 4,538.4 (up by 32.6%) | 3,583.9 (up by 26.9%) |
| 2007 | 7,231.4 (up by 19.9%) | 3428.3 (up by 33.3%) | 2,819.4 (up by 28.2%) |
| 2006 | 5,454.6 (up by 19.3%) | 2090.5 (up by 30.6%) | 2,191.6 (up by 25.4%) |
| 2000 | 1,588.3 (up by 13.3%) | 631.6 (up by 16.3%) | 470.4 (up by 19.3%) |
Source: Statistical Communique of the People's Republic of China, 2008.
Table 2: Completed investment in fixed assets in urban and rural areas in 2008 (billion yuan)
| Year | Urban | Rural |
| 2008 | 14,816.7 (up 26.1%) | 2,412.4 (up by 21.5%) |
| 2007 | 11,741.4 (up 25.8%) | 1,982.5 (up by19.2) |
| 2006 | 9,347.2 (up 24.5%) | 1,639.7 (up by 21.3%) |
| 2005 | 7,509.6 (up by 27.2%) | 1,350.8 (up by 18%) |
Source: Statistical Communique of the People's Republic of China, 2008.
But despite the massively increased investment in rural areas, the proportion of completed investment in fixed assets in rural areas compared with urban areas actually decreased from 27.5 percent in 1990 to 14 percent in 2008. (See Table 3).
Table 3: Proportion of completed investment in fixed assets in rural and urban areas
| 1990 | 2000 | 2007 | 2008 | |
| Urban | 72.5 | 79.7 | 85.5 | 86.0 |
| Rural | 27.5 | 20.3 | 14.5 | 14.0 |
Source: China Statistical yearbook 2008 Table 1-3
The economic and social development of inland rural areas still lags far behind that of the coastal cities. By the end of 2006, only 48.6 percent of rural households had tap water, 60.2 percent were still using wood-burning stoves to cook and 87 percent did not have flush water. Only 9.6 percent of villages and towns could be reached by railways and 46 percent by grade two highways.[3]
As the rural and urban income gap widened, the number of migrant workers also increased. Henan exported 11.6 million migrant workers in 2002, but that figure nearly doubled to 21.6 million in 2008, about one fifth of the entire population. The wages earned by migrant workers quadrupled from 40 billion yuan in 2002 to more than 160 billion yuan in 2008, accounting for more than half of all rural income in the province.[4] In Guizhou, wages accounted for 50 percent of rural income in 2003 and 54 percent in 2007.[5] Migrant workers' wages accounted for 46.7 percent of the overall increase in Guizhou's rural income in 2007.[6] A similar trend can be found nationally; in 1990, migrant workers' wages accounted for only 20 percent of rural income. That figure increased to 30 percent in 1999[7] and 40 percent in 2007.[8] According to the Guizhou Academy of Social Sciences, if two million Guizhou migrant workers (or about one third of the province's migrants) lost their jobs, all of the province's recent increases in rural income would be wiped out.[9]
Social services in rural areas have continued to lag behind or even fall further behind urban areas. For example, although the average number of school years in rural areas increased from 5.1 years in 1980 to 7.8 years in 2008, this was still three years less than the average in urban areas.[10] In Shanghai, a 2007 survey showed that young urban workers had on average 14 years of education.[11] Migrant workers by contrast had low levels of education and little vocational training. They could only occupy the lowest paid jobs in the cities. However, they are still the elite in the countryside. The disparity between urban and rural regions has been further aggravated by the fact that migrant workers tend to be younger and better educated than those who remain in the countryside.[12] [13]
After three decades of economic development, many coastal cities, such as Shenzhen, are now committed to transforming themselves from labour intensive economies into technology intensive ones. In May 2008, the Guangdong provincial government pledged some 50 billion yuan to facilitate the "Double Transfer" of labour intensive industry out of the Pearl River Delta, and the transfer of technology intensive industries into core areas of the delta.[14] The Guangdong plan encapsulates a national trend in which lower-skilled workers are gradually moving to inland urban areas, while higher qualified workers are migrating to the coastal cities.
This process has been accelerated and intensified by the global financial crisis.[15] Labour intensive original equipment manufacturers (OEMs) have been worse hit by the financial crisis.[16] In Guangdong, up to 40 percent of the enterprises that closed down were OEMs[17] More productive original brand manufacturers, by contrast, have seen their fortunes increase in some parts of Guangdong in spite of the global turndown.[18]
This transfer process may shorten migration distances and reduce the proportion of cross-province migration. It will therefore be beneficial to the abolition of the hukou system within a specific province. However, even in inland regions, the focus of investment is still likely to be urban rather than rural areas.
According some models of economic development and income disparity, such as Simon Kuznets' theory, disparity will initially increase with industrialization, then reach a peak and begin to decline. Kuznets' theory posits that when the non-agricultural population of a state reaches 60 percent to 70 percent and the per capita GDP reaches US$1,000, income discrepancy will start to decrease.[19] Ge Xiaoli (2008) used official statistics to examine the relationship between economic development and rural and urban inequality in China and found that the quicker the development, the higher the inequality. She concluded therefore that China was still on the ascending side of Kuznets' curve.[20] Although China's GDP per capita has already reached the US$1,000 threshold, the rural population remains very large.
Political economists argue that the government cannot simply rely on economic and demographic forces alone to narrow the urban-rural divide in the future. It needs to adopt specific administrative measures such as tax and social welfare reform, and further increase rural investment so that the proportions of completed rural and urban investment are brought into closer alignment.[21]
- 2003 国务院工作报告 (Work Report of the State Council 2003), 新华社 (Xinhua), 5 March 2003. The agricultural tax was eventually abolished in 2006. "取消農業稅" (Abolishing the agricultural tax), 新华社 (Xinhua), 6 March 2006. [top]
- "关于建立新型农村合作医疗制度的意见" (Opinion on the establishment of a new rural medical health cooperative system), issued by the Ministry of Health, Ministry of Finance, and the Ministry of Agriculture on 10 January 2003.[top]
- Fan, Ping樊平(2008) "2008年中国农民发展报告" (A report on the development of rural China 2008). 2009年中国社会形势分析与预测 （Society of China Analysis and Forecast 2009). China: Social Sciences Academic Press, 332-333.[top]
- "河南進京推銷農民工 勞務收入全國第一" (Henan government promotes its migrant workers in Beijing, Henan province ranked first in wage income), Wenweipo, 26 February 2009.[top]
- "貴州：返鄉農民工將增多 農民增收遇難題" (Guizhou: More and more migrant workers return to the countryside, increase in rural income may be difficult), 經濟參考報 (Economic Reference News), 23 February 2009.[top]
- Fan, Ping樊平(2008) "2008年中国农民发展报告" (A report on the development of rural China 2008). 2009年中国社会形势分析与预测 （Society of China Analysis and Forecast 2009). China: Social Sciences Academic Press.[top]
- "農民每年務工收入1600億 中國嚴查剋扣工資行為" (Migrant workers earn 160 billion yuan annually, China combats the practice of withholding wages), 中国新闻网 (China News）, 19 January 2003.[top]
- Statistical Yearbook 2008, Table 9-22[top]
- "貴州：返鄉農民工將增多 農民增收遇難題" (Guizhou: More and more migrant workers return to the countryside, increase in rural income may be difficult), 經濟參考報 (Economic Reference News), 23 February 2009.[top]
- "中國農民平均受教育年限7.8年 就業培訓不到20%" (Migrant workers receive on average 7.8 years of education, less than 20 percent had vocational training), 中國網 (China Net), 25 April 2008.[top]
- "上海新增勞動力平均受教育14年" (Shanghai's new workforce has on average 14 years of education), 人民日報 (People's Daily) 27 January 2008.[top]
- Ma, Bin 马斌 & Zhang, Fuyao 张富饶 (2008). "城乡居民收入差距影响因素实证分析" (Empirical analysis of urban and rural income disparity), 中国农村经济 (China Rural Economy) 2: 53-59.[top]
- Fan, Ping樊平(2008) Op Cit.[top]
- "广东5年500亿力推"双转移"将从8方面进行扶持" (Guangdong provincial government plans to spend 50 billion yuan to implement "double transfers" from eight areas), 羊城晚报 (Yangcheng Evening News), 30 May 2008.[top]
- "Changing times in Pearl River Delta region", China Daily, 8 December 2008.[top]
- "汕頭：玩具業金融危機中大顯雄威" (Shantou: Toy industry achieves brilliant result in the financial crisis), 南方動漫網 (Nanfang Comic and Animation Net), 11 February 2009.[top]
- "金融危機下沿海外貿企業生存調查:行業洗牌危中尋機" (A survey on the survival of exporting enterprises in coastal cities during the financial crisis: in search of a new way in industry reshuffle), 新華網 (Xinhua), 23 March 2009.[top]
- "汕頭：玩具業金融危機中大顯雄威" (Shantou: Toy industry achieves brilliant results in the financial crisis), 南方動漫網 (Nanfang Comic and Animation Net), 11 February 2009.[top]
- Acemoglu, D. and Robinson, J. (2002). "The Political Economy of the Kuznets' Curve", Review of Development Economics 6(2):183-203.[top]
- Ge, Xiaoli葛晓莉 (2008). "中国居民收入差距影响因素的实证分析" (An empirical analysis of rural and urban income disparity), 中华论文网 (Chinese dissertation database), published on 8 July 2008.[top]
- Acemoglu, D. and Robinson, J. (2002) Op Cit.[top]